On Thursday, RBC Capital Markets adjusted its outlook on shares of Berry Global Group (NYSE:BERY), increasing the price target to $73.00, up from the previous $69.00, while maintaining a Sector Perform rating on the stock.
The revision follows Berry Global's announcement of its intention to merge with AMCR, which is anticipated to value Berry's stock at approximately $73.59 per share, representing around a 10% premium. The deal is expected to be finalized by mid-2025, assuming it overcomes regulatory challenges, although it may necessitate minor concessions in the United States.
The analyst noted Berry Global's fiscal year 2025 EBITDA guidance midpoint of $1.8 billion, which slightly exceeds the consensus estimate of about $1.77 billion. This figure excludes earnings from the Health, Hygiene & Specialties (HHS) business, which are estimated to be around $375 million.
As a result, adjustments have been made to the first fiscal quarter and full fiscal year 2025 EBITDA estimates, setting them at $404 million and $1.80 billion respectively. These figures reflect changes due to the spin-off of the Household & Personal Care and Global Tapes (HHNF/GLT) businesses.
The price target increase also incorporates a valuation multiple adjustment, moving from 7 times to a slightly higher 8 times. This change is reflective of the updated EBITDA estimates and the anticipated impact of the announced merger with AMCR on Berry Global's valuation.
Berry Global Group's merger with AMCR is a significant move, expected to offer shareholders a premium on their current holdings. With the transaction projected to close in a couple of years, the company is navigating through the necessary regulatory processes to ensure a smooth merger, while continuing to adjust its financial outlook and operational strategies in light of the proposed spin-offs.
In other recent news, Berry Global Group reported better-than-expected fourth-quarter earnings, with an adjusted earnings per share of $2.27, surpassing the analyst consensus estimate of $2.06.
The company's revenue was recorded at $3.17 billion, exceeding expectations of $3.13 billion, indicating a 2.6% YoY increase. Berry Global also announced a definitive merger agreement with Amcor (NYSE:AMCR) Plc in an all-stock transaction, a significant move as both companies are notable players in the packaging industry.
The merger agreement stipulates that Berry Global shareholders will receive 7.25 shares of Amcor for each share of Berry Global they own. This valuation is approximately 10 times the firm's fiscal year 2026 earnings per share (EPS) estimate of $6.85. Baird increased its price target on shares of Berry Global Group to $70.00, up from the previous $65.00, while maintaining a Neutral rating on the stock.
For fiscal 2025, Berry Global forecasts an adjusted EPS in the range of $6.10 to $6.60. Despite this guidance falling short of the $7.59 consensus estimate, investors were encouraged by the company's outlook for continued low-single digit volume growth and strong free cash flow generation. These are part of the recent developments in the company's operations.
InvestingPro Insights
Berry Global Group's recent strategic moves align with several key financial indicators highlighted by InvestingPro. The company's P/E ratio of 11.77 (adjusted for the last twelve months) suggests a relatively attractive valuation, especially considering the recent price target increase by RBC Capital Markets. This valuation is further supported by an InvestingPro Tip indicating that Berry Global's valuation implies a strong free cash flow yield.
The company's financial health is underscored by its profitability over the last twelve months, with a revenue of $12.26 billion and an EBITDA of $1.984 billion. These figures provide context to the fiscal year 2025 EBITDA guidance mentioned in the article, showing the company's consistent performance.
Additionally, an InvestingPro Tip notes that Berry Global has raised its dividend for 3 consecutive years, with a current dividend yield of 1.8%. This demonstrates the company's commitment to shareholder returns, which could be further enhanced by the premium offered in the proposed merger with AMCR.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide deeper insights into Berry Global's financial position and future prospects.
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